The deductibility of indirect empowerment measures relating to black economic empowerment (BEE) in terms of the income tax act

[摘要] ENGLISH ABSTRACT: The requirements of broad-based black economic empowerment ('BEE') are setout in the BEE scorecard. When an entity incurs expenditure relating to indirectempowerment measures (i.e. the preferential procurement, enterprisedevelopment, skills development and socio-economic development categories onthe BEE scorecard), it is unclear whether the expenditure will be deductible forincome tax purposes (BEE Partner, 2008).The objectives of the current study are to determine whether such expenditure isdeductible and to formulate best practice guidelines for the deduction of theexpenditure. The best practice guidelines consist of factors that should beconsidered when determining whether expenditure is deductible, as well asrecommendations on how to justify that such expenditure should, in fact, bedeductible.The methodology used was to first consider the requirements of the BEEscorecard, the types of expenditure and the reasons for incurring expendituretowards indirect empowerment measures. The deduction of such expenditure wasthen considered in a general sense and specifically for each broad category ofexpenditure. Lastly, the best practice guidelines were formulated based on theconclusions reached.Common expenditure towards indirect empowerment measures of BEE wasgrouped into broad categories. The different reasons why entities incur suchexpenditure were identified, as the reason for incurring expenditure can influencewhether it is incurred in the production of income (Van Schalkwyk, 2010b:110).It is submitted that expenditure that is excessive or that is incurred forphilanthropic purposes would not be incurred in the production of income.Four issues were identified that could preclude a deduction in terms of the generaldeduction formula (section 11(a)) – notably, that expenditure has to be in theproduction of income and non-capital in nature to be deductible. In addition tosection 11(a), special income tax deductions (sections 12H, 12I or 18A) andcapital allowances (sections 11(e), 13sex or 15(a)) could also possibly apply, butonly for certain types of expenditure and only in qualifying circumstances.The conclusions drawn as to the deductibility of expenditure are summarised as aguideline for taxpayers.The above-mentioned conclusions, along with the literature examined, were usedto formulate general best practice guidelines. One such guideline is that the onusis on taxpayers to show (through one of the ways suggested) that expenditure isin the production of income. Taxpayers should also note that excessiveexpenditure is not in the production of income and that certain expenditurerequired by sector charters is more likely to be capital in nature.Furthermore, specific best practice guidelines were submitted for each broadcategory of expenditure and relate to, for example, the applicability of theidentified special deductions and the quantification of non-monetary expenditure.The specific best practice guidelines should be considered when incurringexpenditure in a specific category.In summary, even though expenditure towards indirect empowerment measureshas been found to be deductible in most cases, there are exceptions of whichtaxpayers should be aware. The proposed best practice guidelines includeguidance that could be considered before incurring expenditure towards indirectBEE measures.

[发布机构] Stellenbosch University